Can You Sell Property That Has Liens Attached To It?
When you buy or sell a house, you may find that there are liens on the property that you were or were not aware of previously. Depending on the type of lien, and the amount of the lien, these liens could be impediments to closing in your home, and could potentially ruin the entire deal.
If there is a lien on your home, can you still sell the property?
You Can—But Should You?
Legally, the answer is yes—the question is whether you want to sell the property, or buy it, with a lien attached.
Liens must be paid off at the sale of the property from the proceeds of the closing. You already do this all the time with mortgage liens—at closing, the buyer’s money goes in part to pay off the existing mortgage that the seller previously took out so that the buyer can take the home free and clear of any liens or encumbrances.
Ignoring the Liens
The problem with buying property and ignoring the lien is that the lien then becomes the new buyer’s problem, as the lien will still attach to your property. Because of the lien, you are getting property that is worth less than what you thought it was worth.
For example, let’s say you buy a $300,000 home. You assume the value of the home is at, or around, that $300,000. But if you buy it with, for example, a $50,000 code violation lien attached, whenever you sell the home, you will have to pay off the $50,000 at the sale—that will be money out of your pocket (and that $50,000 will likely be way more than that amount by the time you sell it).
So really, practically, you just bought a $300,000 property but you only have $250,000 in equity from day one.
Another problem is that many title insurance companies may refuse to insure your purchase, if you purchase the property with liens attached.
Liens That Can Foreclose
Some liens can foreclose. You know a mortgage lien can be foreclosed on, but so can some tax liens, homeowners associations, and construction related liens. If you buy property with those kinds of liens attached, you can lose your home in foreclosure—even though you weren’t the one that incurred the debt or caused the lien to attach.
Satisfying Existing Liens
Just like you would do with a mortgage lien, you can opt to pay off any lien at closing—this is usually done by lowering the purchase (sale) price of the home by the lien amount, and thus, the buyer’s money is satisfying the seller’s lien, but the buyer isn’t actually paying more, the seller is just getting less.
However, this often is not something that can be done immediately, as many companies will take a few days to process payments, and file releases of lien.